# Petition for Writ of Certiorari — Armstrong v. State Bank of Towner

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1985
- **Citation:** 473 U.S. 906

## Text

TC
1 7 49 Office - Supreme Court, US.
84 ae FILED

Case No. MAY 6 1985

SUPREME COURT OF THE UNITHD AGRAMES - STEvas,
CLERK

October Term 1984
In re:
Victor L. Gelking,

Debtor

Phillip D. Armstrong, Trustee of
the Estate of Victor Gelking,

Petitioner
Vs.
State Bank of Towner,

Respondent

ee eee ee ee ee ee ee eee See

ON WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE EIGHTH CIRCUIT

PETITION FOR WRIT OF CERTIORARI

Counsel for Counsel for
Petitioner: Respondent:

Phillip D. Armstrong Richard P. Olson
300 U.S. Courthouse P.O. Box 1000 ~
100 lst St. SW Minot, ND 58701
Minot, ND 58701 701/852-0381
701/838-9422

20.

QUESTION PRESENTED FOR REVIEW

Did the circuit court panel
impermissibly apply state law to
determine whether there had been

a transfer of rights in an aircraft?

PERS REE RE RR REE EE

TABLE OF CONTENTS

QUESTION PRESENTED FOR REVIEW. .
TABLE OF CONTENTS . . « « « « « «@
TABLE OF AUTHORITIES .... .\.
OFFICIAL REPORTS a a Oo eee ae
JURISDICTIONAL STATEMENT ... .
CODE PROVISIONS & STATUTES ...
STATEMENT OF THE CASE .....« «
oy ae a a ee a a ee ee i
ARUaMULs «0 © © © 6-e¢ 6 06 © 6 @ «8

Eighth Circuit Opinion...

U.S. District Court Opinion.

= 4 4 4 8 | 4 a g . | '

TABLE OF AUTHORITIES

In re Air Vermont,

Inc.,

41 B.R. 486 (Bkrtcy. VT 1984)

In re Air Vermont,

Inc.,

45 B.R. 820 (D.C.

Cummins v. Sky Cruisers,

VT 1984)

Inc. ,

130 Cal. Rptr. 897 (Ct. App.

1976)

Marsden v. Southern Flight Service,

227 F.Supp. 411 (D.C.

Pepper v. Litton,

308 U.S. 295 (1939) .

NC 1961)

Philko Aviation, Inc. v. Shacket,

103 S.Ct. 2476 (1983) .

In re Quality Holstein Leasing,

752 F.2d 1009 (5th Cir.

South Shore Bank v.

Tony Mat,

1985)

Inc.

712 F.2d 896 (3rd

ll U.S.C.A. Section
ll U.S.C.A. Section

49 U.S.C.A. Section

Cir. 1983)

101( 48)
544(a)

1403(c)

14 C.F.R. Part 49, AC Form 8050-
94 (9-75), Paragraph 12

-iii-

OG eCeGe Section 9-203 (N.D.C.C. Section
41-09-16(1)(c)) . . . . . . . . . 7 3

u.¢@.C. Section 9-301 (N.D.C.C. Sections
41-09-22(1)(b),(3)) . . . . . . . . . 7

UG eCeGCe Section 9-302(4) (N.D.C.C.
Section 41-09-23(4)) . . _ . . . o . 5

OG eGeGe Section 9-303 | wwe Section
41-09-24(1)) . . - . . . . . . . 3

OFFICIAL REPORTS

The opinion of the United States
Court of Appeals for the Eighth Circuit
is reported at 754 F.2d 778.

The opinion of the United States
District Court, District of North
Dakota is not reported. It is Civil
No. A4-84-69.

The opinion of the United States

Bankruptcy Court is not reported. It

is Bankruptcy Case No. 81-05384.

S868 68 6888 ££ SSS

JURISDICTIONAL STATEMENT

On February 12, 1985, the United
States Court of Appeals for the Eighth
Circuit filed its opinion affirming
the judgment of the United States Dis-
trict Court for the District of North
Dakota.

The United States Supreme Court's
jurisdiction is invoked under 28

U.S.C.A. Section 1254(1).

-Vi-e

CODE PROVISIONS & STATUTES INVOLVED

ll U.S.C.A. Section 544(a).

(a) The trustee shall have, as of
the commencement of the case, and with-
out regard to any knowledge of the
trustee or of any creditor, the rights
and powers of, or may avoid any trans-
fer of property of the dektor or any
obligation incurred by the debtor that
is voidable by -

(1) a creditor that extends
credit to the debtor at the time of
the commencement of the case, and that
obtains, at such time and with respect
to such credit, a judicial lien on all
property on which a creditor on a sim-
ple contract could have obtained such a
judicial lien, whether or not such a
creditor exists;

(2) a creditor that extends
credit to the debtor at the time of the
commencement of the case, and obtains,
at such time and with respect to such
credit, an execution against the debt-
or that is returned unsatisfied at such
time, whether or not such a creditor
exists; or

(3) a bona fide purchaser of
real property, other than fixtures,
from the debtor, against whom appli-
cable law permits such transfer to be
perfected, that obtains the status of
bona fide purchaser and has perfected
such transfer at the time of the com-
mencement of the case, whether or not
such a purchaser exists.

-vii-

ae 2 2 a | | a = BEREE a

ll U.8.C.A. Section i101¢48).

"transfer" means every mode, direct
or indirect, absolute or conditional,
voluntary or involuntary, of disposing
of or parting with property or with an
interest in property, including retent-
ion of title as a security interest and
foreclosure of the debtor's equity of
redemption;

AC Form 8050-94 (9-75).

Department of Transportation
Federal Aviation Administration
FAA Aircraft Registry AAC-250
P.O. Box 25504
Oklahoma City, Oklahoma 73125

INFORMATION TO AID IN THE REGISTRATION
OF U.S. CIVIL AIRCRAFT

* * *

12. JUDICIAL SALE. The buyer of an
aircraft at a judicial sale, or at
a sale to satisfy a lien or charge,
must submit a bill of sale signed
by the sheriff, auctioneer, or
other authorized person who con-
ducted the sale and must include a
statement that the sale was made
under applicable local law.

-viii-

49 U.S.C.A. Section 1403(c).

Validity of conveyances or other
instruments; filing

(c) No conveyance or instrument the
recording of which is provided for by
subsection (a) of this section shall be
valid in respect of such aircraft, air-
craft engine or engines, propellers,
appliances, or spare parts against any
person other than the person by whom
the conveyance or other instrument is
made or given, his heir or devisee, or
any person having actual notice thereof,
until such conveyance or other instru-
ment is filed for recordation in the
office of the Secretary of Transporta-
tion: Provided, That previous record-
ing of any conveyance or instrument
with the Administrator of the Civil
Aeronautics Administration under the
provisions of the Civil Aeronautics
Act of 1938 shall have the same force
and effect as though recorded as pro-
vided herein; and conveyances, the re-
cording of which is provided for by
subsection (a)(l) of this section made
on or before August 21, 1938, and in-
struments, the recording of which is
provided for by subsections (a)(2) and
(a)(3) of this section made on or be-
fore June 19, 1948, shall not be sub-
ject to the provisions of this sub-
section.

-ix-

North Dakota Century Code 41-09-16(1)
(Uniform Commercial Code 9-203(1))

Enforceability of security interest -
Proceeds, formal requisites.

1. Subject to the provisions of
section 41-04-18 om the security inter-
est of the collecting bank and section
41-09-13 on a security interest aris-
ing under the chapter on Sales, a se-
curity interest is not enforceable
against the debtor or third parties
with respect to the collateral and does
not attach unless all of the following
take place:

a. The collateral is in the
possession of the secured party pur-
suant to agreement, or the debtor has
Signed a security agreement which con-
tains a description of the collateral
and, in addition, when the security
interest covers crops growing or to be
grown or timber to be cut, a descrip-
tion of the land concerned.

b. Value has been given.

c. The debtor has rights in
the collateral.

North Dakota Century Code 41-09-22(1)(b)
and (3).

(Uniform Commercial Code 9-301(1)(b),(3)).

Persons who take priority over unper-
fected security interests - Right of
"lien creditor".

1. Except as otherwise provided

in subsection 2, an unperfected secur-
ity interest is subordinate to the
rights of:

a. Persons entitled to
priority under section 41-09-33.

b. A person who becomes a
lien creditor before the security in-
terest is perfected.

* * *

3. A “lien creditor" means a
creditor who has acquired a lien on
the property involved by attachment,
levy, or the like and includes an
assignee for benefit of creditors from
the time of assignment, and a trustee
in bankruptcy from the date of the
filing of the petition or a receiver
in equity from the time of appoint-
ment.

North Dakota Century Code 41-09-24(1)
(Uniform Commercial Code 9-303(1))

When security interest is perfected;
Continuity of perfection.

(1) A security interest is per-
fected when it has attached and when
all of the applicable steps required
for perfection have been taken. Such
steps are specified in Sections 41-09-
23, 41-09-25, 41-09-26, and 41-09-27.
If such sv.eps are taken before the se-
curity interest attaches, it is per-
fected at the time when it attaches.

-xi-

North Dakota Century Code 41-09-23(4)
(Uniform Commercial Code 9-302(4)).

When filing is required to perfect
security interest -- Security interest
to which filing provisions of this
chapter do not apply.

* * *

4. Compliance with a statute or
treaty described in subsection 3 is
equivalent to the filing of a financing
statement under this chapter, and a
security interest in property subject to
the statute or treaty can be perfected
only by compliance therewith except as
provided in section 41-09-03 on multiple
state transactions. Duration and renewal
of perfection of a security interest
perfected by compliance with the statute
or treaty are governed by the provisions
of the statute or treaty; in other
respects, the security interest is
subject to this chapter.

-xii-

STATEMENT OF THE CASE

The debtor filed his bankruptcy
petition on August 21, 1981. In the
debtor's possession at that time was a
1978 Piper Lance aircraft. The record
owner of the aircraft at that time was
not the debtor. Three individual co-
owners were the owners of record with
the FAA on August 21, 1981.

The State Bank of Towner claimed
a security interest in the aircraft.

The corporation of the co-owners,
D.D.C., Inc., but not the co-owners
themselves, had given a bill of sale
for the aircraft to the debtor. The
bank filed for recordation the bill of
sale along with its security agreement
with the debtor. The FAA refused to

record the bank's security agreement

-xiii-

SEER ER ERRERER EERE E

because of the lack of documentation
of the debtor's chain of ownership.

The missing link in the debtor's
chain of ownership, the necessary bill
of sale from the co-owners to D.D.C.,
Inc., was not made and filed for record-
ation until after the debtor had filed
his petition. The bank's security agree-
ment was recorded on November 17, 1981.

On March 4, 1983, the trustee filed
an adversary proceeding seeking an order
declaring the lien of the trustee to be
superior to the unperfected security
interest of the bank.

The bankruptcy court held that the
bank had a perfected security interest.

The district court and circuit court

affirmed.

-Xiv-

SEB RE EREER BR ER RB ESEEES

ARGUMENT

The question presented is impor-
tant to federal - state relations under
the Federal Aviation Act, 49 U.S.C.A.

Section 1403 et seq.

The Eighth Circuit Court of Appeals

held that state law is applicable in
determining when a transfer occurs of a
perfected security interest in an air-
craft subject to the Federal Aviation
Act recording requirements. The deci-
sion of the circuit court is in con-

flict with a decision of this Court.

In Philko Aviation, Inc. v.

Shacket, 103 S. Ci. 2476 (1983), this

Court held that state laws regarding
title transfers in aircraft are pre-
empted by the Federal Aviation Act.

Ibid at 681-82. This decision was fol-

lowed by South Shore Bank v. Tony Mat,

Inc., 712 F.2d 896 (3rd Cir. 1983).
These decisions interpreted Sectior
503(c) of the Federal Aviation Act,

49 U.S.C.A. Section 1403(c), to mean
that every transfer of an interest in
aircraft must be evidenced by an in-
strument and that every such instru-
ment must be recorded before the rights
of innocent third parties can be af-

fected. Philko Aviation Inc. v.

Shacket, supia at 2478.

On the other hand the Eighth Cir-
cuit Court of Appeals impermissibly
applied a state law test to determine
when a transfer occurred of a perfect-
ed security interest in an aircraft.
The court held that less than full
legal title was sufficient to perfect
the bank's security interest over the

lien of the trustee. Opinion at 781.

This is Professor Gilmore's statement
regarding the fulfillment of the UCC
requirement that the debtor have rights
in collateral before a security interest
can attach and become perfected. UCC
Sections 9-203, 9-303.

Under the holdings of this Court
and the Third Circuit Court of Appeals
a party claiming an interest in aircraft
either has full legal title or no title.
Written instruments evidencing each
transfer of an interest must be feder-
ally recorded. Unfortunately for the
bank a transfer crucial to its security
interest was not in existence and recor-
ded until after bankruptcy intervened.

Transfer is broadly defined. ll
U.S.C.A. Section 101(48).

The filing of the bankruptcy peti-

tion gave rise to the trustee's strong

arm powers. The trustee's lien is
superior to unperfected security inter-

ests. See generally In re Quality

Holstein Leasing, 752 F.2d 1009, 1012-

1015 (5th Cir. 1985).

It is obvious that the bank's
security interest was not perfect
against the world at the time the peti-
tion was filed. The record owner, the
three individual co-owners, could have
conveyed good title to an innocent third
party, even in fraud of the debtor.

The fact that the record owner did
not convey title to another is not
material to the issue before the lower
courts, that is, whether the bank's
security interest was perfected at the
time the petition was filed.

Under che UCC the preemption by a

federal recording statute changes only

SE RRRERRERRRERESES

the method of filing the appropriate
notice that a security interest is
claimed in collateral. UCC Section
9-302(4). The debtor must still

acquire rights in the collateral before
a security interest can attach and be
perfected. Under the Federal Aviation
Act the aebtor can acquire rights in

the collateral only if there are written
instruments of record which evidence his
ownership of aircraft.

Where federal preemption occurs,
the UCC requires compliance with the
federal statute. UCC Section 9-302(4).
The bank did not comply. It did not
timely file for recordation all the
necessary instruments of transfer.

The burden to properly record is

on the secured party. In re Air

Vermont, Inc., 41 B.R. 486, 492

@M@m@O@BAL4OB KER RRR RE KR ERS eS &

(Bkrtcy. VT 1984); Cummins v. Sky

Cruisers, Inc., 130 Cal. Rptr. 897,
900 (Ct. of Appeals 1976); Marsden v.

Southern Flight Service, Inc., 227 F.

Supp. 4ll, 419 (D.C. NC 1961).

After the debtor had filed his
petition the further acts of the bank
to obtain and record the final instru-
ment of transfer were of no effect.

In re Quality Holstein Leasing, supra

at 1011.

The lack of the debtor's record
ownership at the time of bankruptcy
does not have the same fatal effect on
the trustee as it has on the bank.

The trustee, as successor to the

rights of the debtor, could seek the
assistance of a court of equity to com-
pel a bill of sale from the co-owners

to D.D.C., Inc. Pepper v. Litton,

=e 8 &

BERBER EBE EE EG ES =

308 U.S. 295, 304-305, note 11 (1939).
The trustee is an innocent third
party with the status of a judicial
lien creditor. 11 U.S.C.A. Section
544(a). The trustee's lien attached
at the time of the filing of the peti-
tion. UCC Section 9-301(3). The FAA
has provisions under the regulations
by which judicial liens will lead to
federal record rights. AC Form 8050-
94(9-75), Paragraph 12; 14 CFR Part 49.
The bank, "like the Shackets failed
to take appropriate prophylactic measures
to ensure that the other party to the
transaction performed the acts necessary
for the appropriate recordation of the
transfer. As a result, the transfer was
ineffective. . .
"Although this is a harsh result,

to hold otherwise would permit parties

SERRE RRR RR RRR ER ES

to aircraft transfers to avoid the
reach of 49 U.S.C. Section 1403(c)
merely by failing, intentionally or
not to record certain documents."

In re Air Vermont, Inc., 45 B.R. 820,
623 (D.C. VP 1964).

The circuit court panel erred
in failing to apply federal law to
test the "rights in the collateral"
requirement. The trustee respectfully
requests the Court to review the

decision.

“SeEBREREBRER RHR EB R BREESE E

APPENDIX

The following is the decision of
the United States Court of Appeals of
the Eighth Circuit, which was filed on
February 12, 1985 and reported at
754 F.2d 778.

/779

Victor L. Gelking (debtor) filed
a Chapter 7 bankruptcy petition on
August 21, 1981. The trustee of his
estate, Phillip D. Armstrong, sought
to avoid the State Bank of Towner's
(bank's) security interest in the debt-
or's airplane, pursuant to his status
as an unsatisfied judicial lien cre-
Gitor under ll U.S.C. 8 544(a) (1982),
on the ground that the bank's security
interest was not perfected prior to
the date the debtor filed for bankrupt-

cy. The bankruptcy court found that

edithen

= = | f Bg e | Ez gE , a a a eo z = I = —!

the bank's security interest had been
perfected prior to August 21, 1981.
This determination was affirmed by the
district court. The trustee appeals
to this court. We affirm.
PACTS

From 1969 to January of 1981, the
debtor operated a business in Minot,
North Dakota, known as Minot Aircraft
Sales. On September 27, 1979, the
debtor obtained a loan from the bank
for the purchase of two airplanes.
Subsequently, the debtor exchanged the
two airplanes for a 1978 Piper Lance
airplane owned by D.D.C., Inc. The
bank released its liens on the two ex-
changed airplanes upon the debtor's
execution of a new security agreement
granting the bank a security interest

in the 1978 Piper. /780

ke

PEERS RRR RRREREREEESE

This security agreement was then
mailed, along with the debtor's bill of
sale from D.D.C., Inc. and an applica-
tion for registration, to the Federal
Aviation Administration (FAA). These
documents were filed for recordation
with the FAA on May 12, 1981. The se-
curity agreement was filed a second
time on July 20, 1981. Actual recorda-
tion of the security agreement, however,
did not occur until November 17, 1981.
This delay in recordation was partially
caused by the bank's failure to supply
evidence of the debtor's complete
chain of ownership (i.e., vill of sale
from initial owners to D.D.C., Inc.
and the original bill of sale to the

initial owners).

DISCUSSION

The relevant North Dakota statu-

tory provisions read as follows:

aot.

3. The filing of a financing
statement otherwise required by this
chapter is not necessary or effective
to perfect a security interest in pro-
perty subject to:

a. A statute or treaty of
the United States which provides for a
national or international registra-
tion or a national or international
certificate of title or which speci-
fies a place of filing different from
that specified in this chapter for
filing of the security interest.

* * * *

4. Compliance with a statute or
treaty described in subsection 3 is
equivalent to the filing of a finan-
cing statement under this chapter, and
a security interest in property sub-
ject to the statute or treaty can be
perfected only by compliance therewith
except as provided in section 41-09-03
on multiple state transactions. Dura-
tion and renewal of perfection of a
security interest perfected by compli-
ance with the statute or treaty are
governed by the provisions of the
statute or treaty; in other respects,
the security interest is subject to
this chapter.

N.D.C.C. § 41-09-23(3)(a), (4) (Uni-
form Commercial Code 8 9-302(3)(a),

(4)). The Federal Aviation Act pro-

ak?

SERB ESE RSE RE R ERE ER EEE SE

vides a central clearing house for the

recordation of interests in aircraft
and, as such, is a type of statute re-
ferred to in subsection (3)(a) of N.D.
C.C. § 41-09-23. 49 U.S.C. 8 1403

(1982). See Philko Aviation, Inc. v.

Shacket, 103 S. Ct. 2476, 2479 (1983);

U.C.C. 8 9-302 comment 8. Accordingly,
under North Dakota law, security inter-

ests in aircraft can be perfected ‘only
by compliance" with the Federal Avia-
tion Act.

The pertinent portions of the Fed-

eral Aviation Act provide as follows:

Validity of conveyances or other
instruments; filing

(c) No conveyance or instrument
the recording of which is provided for
by subsection (a) of this section shall
be valid in respect of such aircraft
* * * against any person other than
the person by whom the conveyance or
other instrument is made or given, his
heir or devisee, or any person having
actual notice thereof, until such con-
veyance or other instrument is filed

-13-.

SESS ERERRRER RRR ESSE

for recordation in the office of the
Secretary of Transportation * * *,.

Effect of recording

(d) Each conveyance or other in-
strument recorded by means of or under
the system provided for in subsection
(a) or (b) of this section shall from
the time of its filing for recordation
be valid as to all persons without
further or other recordation * * *.,

49 U.S.C. 8 1403(c), (d) (1982) (empha-
sis added). These sections establish
that perfection of a security interest
occurs on the date the security agree-

ment is “filed for recordation." See

1)

In re Farina, 25 Bankr. 4ll, 413 (Bankr.

D. Me. 1982) (perfection of security
interest in airplane occurs on date
security agreement filed for recorda-

tion); In re Disney, 24 Bankr. 155,

157-58 (Bankr. D. Id. 1982) (same).
Under the Act, actual recordation

is not necessary for perfection.

Actual recordation is necessary, how-

ever, in order for the creditor to reap

+4.

the benefits of any priority his filing
for recordation may have established.

See Philko Aviation, Inc. v. Shacket,

supra, at 2480. ("Although state law
determines priorities, Py eee
must be federally recorded before they
can obtain whatever priority to which
they are entitled under state law").

In this case, actual recordation
of the bank's security agreement occur-
red. Since the bank's security inter-
est was perfected as of the date it
was filed for recordation (May 12,
1981), it was perfected prior to the
date the debtor filed his bankruptcy
petition (August 21, 1981). According-
ly, the bank's security agreement was
not avoidable by the trustee.

The trustee seeks to avoid this

result by arguing that attachment of

| oF

the bank's security agreement did not
occur until the debtor acquired record
ownership in the airplane. Attachment,
of course, is a necessary step in the

perfection of a security interest.
N.D.c.c. gg 41-09-16(1),-24(1) (U.C.C.
gs 9-203(1), 303(1)). Further, in or-
der for a security interest to attach,
the debtor must have "rights in the
collateral." N.D.C.C. § 41-09-16(1)(c)
(U.C.C. § 9-203(1)(Cc)).

The trustee admits that the debt-

or had an equitable interest in the
airplane prior to filing for bankrupt-
cy. The trustee argues, however, that
the debtor's rights in the airplane
were not sufficient to satisfy the
“rights in the collateral" requirement.
He bases this argument on the conten-

tion that, prior to the recordation of

— a

SEBS RB RERE RRR ERR ECE ES

his (sic) and D.D.C., Inc.'s interest in
the airplane, he (sic) could not convey
an interest which would be indefeasible
and valid against third parties. We find
no language in the North Dakota statutes
or caselaw, however, which would support
a conclusion that a debtor must possess
such rights in order to have “rights in
the collateral". Instead, we conclude
that the rights that the debtor possessed
in the airplane prior to filing were
sufficient to meet the "rights in the
collateral" requirement. See 1 G.Gilmore,

Security Interests in Personal Property 2

11.5 at 353 (1965) ("less than full
"legal title'" will satisfy the "rights
in the collateral" requirement).

In conclusion we find that the

bank's security interest in th~> debt-

ok Be

SERB ERB ERB REE REE SBE E

or's airplane was perfected prior to
the date the debtor filed for bank-
ruptcy. Accordingly, the judgment of

the district court is affirmed.

Following is the decision of the
United States District Court, District
of North Dakota, which was filed on

June 15, 1984.

This is an appeal from an order
dismissing the Trustee's complaint.

The bankrupt estate included a
property interest in a Piper airplane
in which the State Bank of Towner held
a security interest. The State Bank of
Towner had not, at the time bankruptcy
was declared, completed registering

its claim with FAA. The Trustee seeks

-18-

BEER REREREREREEEE SE

to set aside the security interest and
recover the value of the airplane for
the general creditors.

The evidence established these
facts: The State Bank of Towner first
held a security lien on two airplanes
as of September 27, 1979. The debtor
traded the old airplanes for a new one,
without the advancement of further
moneys by the bank. The bank released
its liens on the old airplanes in ex-
change for a lien on the new one. The
debtor filed as a bankrupt under Chap-
ter 7, August 12, 1981.

The loan by the bankrupt on April

1. The security agreement was stamped
as a conveyance filed with the FAA air-
craft registry on two dates: May 12,
1981, and, after correction of the re-
cord, again July 20, 1981.

tie

SHEE E ERE ERE REE RE EEEBE

30, 1981 was $60,380.23. The State
Bank of Towner sold the aircraft for
$31,000.00 on October 13, 1982.

The Bankruptcy Judge found the
security claim was not upset by the
bankruptcy filing and dismissed the
Trustee's complaint.

In resolving this appeal, I apply
the "clearly erroneous standard" as to

the findings of fact, Clay v. Traders

Bank of Kansas City, 708 F.2d 1347,

1350-51 (8th Cir. 1983).

Under Title 11 U.S.C. 8 541, fil-
ing for relief in bankruptcy creates
an estate made up of all legal or
equitable interests of the debtor in
property as of the commencement of the
case. Transfers which perfect inter-
ests in estate properties after the

commencement of the bankruptcy pro-

_

ceedings may be set aside by the Trust-
ee of the estate, Title 11 U.S.C. 8 549.
Persons who have unsecured interests

in estate property at the time the
bankruptcy proceeding is commenced may,
in certain circumstances have their
interests avoided by the Trustee,

Title 11 U.S.C. 8 544,

The issue here is whether the
bank's perfection of the security in-
terest, which was completed within the
time for avoiding transfers, is an
avoidable interest. Title 49 U.S.C.
1403(a)(1) requires the Secretary of
Transportation to maintain a recording
system covering any conveyance which
affects title to or interest in any
civil aircraft of the United States.
Title 49 U.S.C. 8 1403(c) states: No
conveyance or instrument the recording

of which is provided for by subsection

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(a) of this section shall be valid

- « » against any person other than
the person who gave it, his successors,
or persons who have actual notice
thereof, until it is filed.

This statute has been interpreted
to mean that the instrument of convey-
ance must be recorded before the rights
of innocent third parties can be af-
fected.

See Philko Aviation, Inc. v.

Schacket, 103 S.Ct. 2476, 2478 (1983).

In that case the first purchaser left
it to the seller to perfect the trans-
fer. The seller did not do so but used
the original record to sell the air-

plane a second time to an innocent

buyer who investigated and relied on
the FAA record. (Absence of the air-
craft was explained to the new buyer

by the seller's claim it had been

an

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flown to a shop for maintenance.)

14 CFR 49.19 (1983) explains the
statutory phrase "filed for recorda-
tion" (49 U.S.C. 8 1403(c) as follows:

A conveyance is filed for re-
cordation upon the date and at
the time it is received by the

FAA Aircraft Registry.

In re Farina, 25 B.R. 4ll (Bankr.

D. Me. 1982), the security agreement
registration and bill of sale of the
airplane were received by the FAA for
registration, but were not filed for
nearly one year, until missing docu-
ments and signatures were received;
and the security interest was held
perfected at the time of the original
receipt. So here, where the bank had
undertaken to perfect its claim and
the delay was due largely to the ad-
ministrative problems of the FAA, the

logic of Farina, supra, must govern.

fa,

BHERHRHREEREEHREEHREHEEBEEHRERBESESE FE

IT IS ORDERED that the decision
of the Bankruptcy Judge dismissing

Plaintiff's complaint is confirmed.

Counsel for Petitioner:

Phillip D. Armstrong
300 U.S. Courthouse
100 lst St. SW
Minot, ND 58701
701/838-9422

Counsel for Respondent:
Richard P. Olson
P.O. Box 1000

Minot, ND 58701
701/852-0381

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385018_0185%3A1. Public record. Not legal advice.